E&P Company Reaps Billions from CapEx Optimizations

A new major capital expenditure optimization strategy pays off for an exploration and production company.

In 2013, an exploration and production (E&P) company in the energy industry developed an aggressive five-year investment plan. The strategy outlined a series of new initiatives, with approximately 50% of the investments going to E&P, mostly in subsea wells and subsea systems. The company also earmarked a 50% increase in well construction activity in the period, compared with the previous five years.

But many of the company's large E&P projects experienced significant operational and financial deviations. It also faced complex dynamics with the supplier market: a concentrated and overheated market, frequent delays in delivery, projected increase in unit costs, and growing levels of local content requirements.

To overcome these challenges, the company sought the help of BCG, which developed a major capital expenditure optimization program for subsea wells and systems, in three steps. First, BCG helped identify the main challenges faced by the energy company. Then, workshops with dozens of executives and technicians were conducted to identify and prioritize more than 40 initiatives. Finally, BCG helped devise a governance structure to ensure the effective monitoring of the program at all levels of the organization. The plan created a process for operational and executive committees to report to directors and the CEO.

BCG helped the company’s project management office (PMO) work with initiative leaders to define a detailed implementation plan for each initiative. It also expanded the focus of the PMO’s efforts from “fire fighting” problems as they arose to long-term improvement of project management and capital efficiency. The office also created a structure for committees to monitor individual programs and conduct annual reviews.

Payoffs from these efforts materialized quickly. The E&P company has realized more than $1 billion in financial gains in the first two years of the optimization program’s rollout, widely recognized by the media. Improvements arose in several areas of operations. In well construction, the company recorded a 20% reduction in rigs downtime, a better-than 15% reduction in the duration of well construction, and more than a 50% drop in nonproductive time associated with rig scheduling, supplies, and licensing. Installation activities for subsea systems also improved, including a 10% decline in nonproductive time for pipe-laying support vessels, and strict standardization of flexible risers and flow-lines was achieved.

Combined financial gains resulting in the first two years from a successful capex optimization program developed by BCG was $1 billion.

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